Office Outlook New York Q3 2016 Vacancy moves higher and activity stalls prior to election The Manhattan office market lost momentum in the third quarter as leasing activity continued to track below average and vacancy rates rose. Current economic and political uncertainty, fundamental changes in occupancy, and a growing pipeline of new product led to the shift in balance. Lack of growth in the financial and legal services sectors historically the two largest drivers of the Manhattan Class market has been the main reason for weaker demand. New York City is expected to remain the most active investment sales market in the world for the second consecutive year.
JLL Office Outlook New York Q3 2016 2 New York overview The Manhattan office market lost momentum in the third quarter as leasing activity continued to track below average and vacancy rates rose. Current economic and political uncertainty, fundamental changes in occupancy, and a growing pipeline of new product led to the shift in balance. Manhattan Class vacancy, which increased to 11.0 percent from 10.8 percent, is now higher than it was in the early 2000s, following 9/11 and the dotcom bust. Not all of Manhattan, however, has been equally impacted by slower market conditions. Midtown South for several years one of the tightest markets in the country edged out Midtown as the nation s most expensive as Manhattan demand has shifted from traditional office product to more creative space. dditionally, demand for new and renovated product remains strong as tenants continue to seek greater efficiencies. The lack of growth in the financial and legal services sectors historically the two largest drivers of the Manhattan Class market has been the main reason for weaker demand. Neither sector has fully recovered since the recession, by either total job count or occupied space. In the third quarter, financial services employment continued to decline, losing 2,400 jobs on a year-over-year basis. The share of space occupied by financial services has fallen from 32 percent to 25 percent in just the past four years. In contrast, occupied square feet in the TMI (technology, advertising, media and information) sector, a key demand driver since the recession, has increased by five percentage points, to 24 percent, over the same time period. While the increase in TMI activity has not been enough to offset weakness in the financial and legal services sectors, it has led to unprecedented demand for office space in Midtown South, as well as a growing interest in Brooklyn and Long Island City. Even expanding industries and companies, however, are not necessarily taking more space. Square feet-to-employee ratios continue to decrease as tenants look to control costs. The market standard has declined from 225 square feet per employee before the recession to 175 square feet today, with future targets of 150 square feet per employee. Some developers of new construction tout ratios as low as 110 square feet for their most efficient layouts. Demand for more efficient space resulted in stronger leasing activity in new product over the third quarter. Hudson Yards, the multi-acre development zone on Manhattan s West Side, landed a rare Downtownto-Midtown migration, with the law firm Milbank relocating to 250,000 square feet at 55 Hudson Yards. In Midtown, Marketxess will relocate to 83,000 square feet at 55 Hudson Yards from 299 Park venue, and the Norwegian financial services group DNB S will move from 200 Park venue to 44,000 square feet at 30 Hudson Yards. fter a slow first half of the year, large commitments were made at the newly constructed World Trade Center. Zurich merican Insurance Company will shed approximately 30,000 square feet at 1 Liberty Plaza and move across the street to 131,876 square feet at Silverstein Properties 4 World Trade Center. Combined with other activity this quarter, occupancy at 4 World Trade Center is now roughly 78 percent.
JLL Office Outlook New York Q3 2016 3 Midtown South historically a fringe or niche office market is now the most expensive major market in the nation with a Class average asking rent of $83.19 per square foot, up nearly 80 percent since 2009. While the expansion of Manhattan s tech industry is responsible for much of the gain, newer and renovated product has also driven rents higher. In contrast, the Midtown Class average asking rent increased just under a percent during the quarter to $81.91 per square foot. Year over year, the Midtown Class average asking rent was up a modest 2.0 percent. On a building-by-building basis, asking rents were flat or decreased while concessions remained high. pproximately 34 million square feet of available space new construction, renovated product and space left behind by vacating tenants is scheduled to come to the Manhattan market by 2021. Under the most generous metrics, Manhattan has absorbed approximately 2 million square feet each year over the last 20 years, which would suggest a 17-year supply of new space over the next five years. Under current market conditions, however, it is increasingly unlikely much of the current pipeline will be built within the timelines that were originally suggested. Historically, New York City s office market has adjusted well to oversupply and shifts in demand: projects are shelved or delayed, obsolete buildings are converted to new uses or adapted for new industries such as New York s burgeoning technology and healthcare sectors and old space is taken off-line and renovated for the next market cycle. Manhattan vacancy is expected to continue to increase through year-end based on known blocks coming to the market. In contrast, Manhattan sublease vacancy typically one of the best indicators for future weakness in pricing remains low by historical standards, at 1.7 percent. Most likely, this will result in flat asking rents and high concessions through year-end. Leasing activity, however, could accelerate following the election as tenants gain more clarity on the future political and regulatory environment. Tristan shby Vice President, Research Director
JLL Office Outlook New York Q3 2016 4 Capital Markets overview Through the third quarter of 2016, 346 transactions (in excess of $10 million) totaling $32.5 billion closed in Manhattan. The year-to-date dollar volume was healthy from a historical perspective, though tracking well below last year s record annual volume of $60.3 billion. The previous 10-year annual average volume was $29.9 billion. The year-over-year slowdown was not specific to the New York City market as volumes were down almost universally among all gateway cities. Nonetheless, New York City is expected to remain the most active market in the world for the second consecutive year. There were an additional 57 transactions totaling $5.6 billion under contract at quarter end, indicating that 2016 volumes should approach 2014 levels. Office remained the most active property segment by dollar volume, keeping pace with 2015 with $18.3 billion or 56.1 percent of total volume through the third quarter of 2016. This was spurred by large deal flow, with seven transactions recorded greater than $1 billion year to date, compared with five such transactions in 2015. Office asset prices continued to escalate as well: the Midtown Class pricing of $1,121 per square foot represented an increase of 2.3 percent over 2015 and 50.9 percent since 2012. The Midtown Class B pricing of $910 per square foot represented an increase of 17.6 percent over 2015 and 60.5 percent since 2012. The unexpected Brexit referendum shook global financial markets briefly late in the second quarter and early in the third quarter, though the near-term economic ramifications subsided as the S&P 500 and other financial market indices later approached or surpassed record highs. Its long-term effects are still unknown, and with historic levels of unplaced capital, additional investment activity is anticipated in global cities competitive with London, such as New York City. Foreign investors continued to pour money into New York City real estate, contributing 43 percent of invested dollar volume through the third quarter of 2016. Many of these acquisitions have taken the form of partial interest investments with the objective of holding assets long-term. s anticipated, the Fed kept interest rates flat at the September FOMC meeting, citing uneven domestic economic signals such as belowaverage inflation as well as worrisome global economic conditions. Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, has indicated that a rate increase is probable by year-end, which would modestly decrease spreads but not materially affect most real estate investment decisions. Encouragingly, traditional and emerging lenders continued to provide strong liquidity in the office sector, including new developments such as SL Green Realty s One Vanderbilt, located adjacent to Grand Central Terminal. The lending conditions in the luxury residential and hotel sectors were comparatively challenged, particularly for non-cash-flowing projects without strong, established sponsorship, leading some landholders to push back new development timelines. Scott Latham Vice Chairman Jon Caplan Vice Chairman Yoron Cohen Vice Chairman Richard Baxter Vice Chairman
JLL Office Outlook New York Q3 2016 5 New York property clock Midtown South Downtown Peaking market Falling market Midtown Rising market Stabilizing market Clock description This diagram illustrates JLL s estimate of the location of each prime office market within its individual rental cycle at the end of the quarter. Markets can move around the clock at different speeds and directions. The diagram is a convenient method of comparing the relative position of markets in their rental cycle. The position is not necessarily representative of investment or development market prospects. The position refers to prime face rental values. Q3 2016 positions Midtown Leasing activity has been light year to date, but a rebound after the election could boost year-end numbers. Vacancy is expected to increase in the coming months as space is returned to the market. sking rents remain flat as landlords push concessions in an effort to maintain current rents. Midtown South Despite slower rental growth in the past 12 months, an imminent and major correction in Midtown South does not appear likely without a significant decline in the tech industry and a subsequent increase in sublease availability. With limited large blocks of space available and minimal lease roll expected in the upcoming years, major landlords are adding new developments to the Midtown South market. Downtown With a healthy pipeline of transactions expected to close in the coming months, strong fourth quarter leasing activity is anticipated in the Downtown market. Vacancy, however, could trend upwards in the coming quarters as blocks from recently signed Downtown relocations hit the market as negative absorption. Looking forward, the pace at which these blocks are re-absorbed will be a good indicator of the strength of the Downtown market.
JLL Office Outlook New York Q3 2016 6 New York market definitions The New York City market is comprised of three major submarkets: Downtown, Midtown and Midtown South. These markets are further divided into four, five and five submarkets, respectively. Midtown submarkets: Columbus Circle, Grand Central, Penn Plaza/Garment District, Plaza District, Times Square Midtown South submarkets: Chelsea, Gramercy Park, Greenwich Village, Hudson Square, SoHo Downtown submarkets: Financial District, Tribeca/City Hall, World Trade Center, Water Street Corridor
JLL Office Outlook New York Q3 2016 7 New York space statistics Current inventory (s.f.) Under construction (s.f.) YTD completion (s.f.) Overall net absorption (s.f.) YTD overall net absorption (s.f.) YTD overall net absorption (% of inventory) Overall vacancy Overall asking rent (gross $ p.s.f.) Midtown Columbus Circle 25,296,466 0 0-23,425-65,065-0.3% 6.7% $74.38 Grand Central 72,205,869 862,154 0 187,922-685,079-0.9% 11.4% $69.61 Penn Plaza/Garment District 46,189,228 6,245,077 1,946,970 1,544,869 1,278,121 2.8% 10.3% $65.24 Plaza District 103,086,508 670,000 0-346,927-623,238-0.6% 10.7% $85.55 Times Square 40,221,709 0 0-441,284-165,912-0.4% 11.2% $75.26 Midtown market totals 286,999,780 7,777,231 1,946,970 921,155-261,173-0.1% 10.5% $75.71 Midtown South Chelsea 23,417,520 727,807 237,558-17,032-164,982-0.7% 6.2% $62.54 Gramercy Park 21,982,308 0 0-13,564 91,890 0.4% 6.9% $74.12 Greenwich Village 5,801,496 0 0 3,806-22,348-0.4% 2.8% $82.21 Hudson Square 10,646,931 120,413 700,000-36,237-112,542-1.1% 10/1% $78.88 SoHo 4,730,123 81,000 0-103,198-189,602-4.0% 8.8% $75.35 Midtown South market totals 66,578,378 929,220 937,558-166,225-397,584-0.6% 7.0% $71.98 Downtown Financial District 37,695,289 0 0-60,285-107,254-0.3% 11.4% $53.40 Tribeca/City Hall 17,721,155 0 0 207,835 164,853 0.9% 6.9% $49.72 Water Street Corridor 22,475,340 0 0 111,241 83,627 0.4% 10.9% $52.73 World Trade Center 18,402,964 2,861,402 0 155,463 394,463 2.1% 12.9% $75.90 Downtown market totals 96,294,748 2,861,402 0 414,254 535,689 0.6% 10.7% $58.04 Market totals 449,872,906 11,567,853 2,884,528 1,169,184-123,068 0.0% 10.0% $71.25
New York Midtown JLL Office Outlook New York Q3 2016 8
JLL Office Outlook New York Q3 2016 9 New York Midtown boundaries Columbus Circle South of West 66th Street, west of Central Park West and venue of the mericas, north of West 50th Street, east of the Hudson River. Plaza District South of East 65th Street, west of the East River, north of 47th Street, east of venue of the mericas. Grand Central South of East 47th Street, north of East 30th Street, east of Fifth venue. Times Square South of West 50th Street, west of venue of the mericas, north of West 40th Street, east of the Hudson River. Penn Plaza / Garment South of 40th Street, west of Fifth venue, north of 30th Street, east of the Hudson River.
JLL Office Outlook New York Q3 2016 10 Midtown Quarter in review Renewals once again took the top spots this quarter in Midtown, but notable leases were signed at Hudson Yards as tenants were drawn to new construction. Two of the top four leases of the quarter in Midtown were renewals. Penguin Random House expanded by 188,000 square feet in a renewal and expansion that brought its total occupancy at 1745 Broadway to 603,605 square feet. Law firm Dentons renewed 191,108 square feet at 1221 venue of the mericas. The other top leases included Milbank s 250,000-square-foot relocation to 55 Hudson Yards from 28 Liberty Street, Bloomberg LP s expansion of 204,442 square feet at 919 Third venue and WeWork s lease at 12 East 49th Street for 159,306 square feet. Four Times Square secured its first new leases following Condé Nast s departure and Skadden s future relocation from the property. ICP will relocate to 82,442 square feet in the building and Fross Zelnick will relocate to 41,221 square feet from 866 United Nations Plaza. Hudson Yards has landed two more tenants relocating from Midtown East and the first from Downtown. Marketxess signed a lease to relocate to 83,000 square feet at 55 Hudson Yards from 299 Park venue, DNB S completed a transaction to relocate to 44,000 square feet at 30 Hudson Yards from 200 Park venue and Milbank will relocate to 250,000 square feet at 55 Hudson Yards from 28 Liberty Street. With 6.2 million square feet of office space under construction and 1.7 million square feet already completed, Hudson Yards and Manhattan West have successfully drawn tenants from other Midtown neighborhoods, particularly the Plaza District and Columbus Circle submarkets. In total, more than 90 percent of tenants relocating to Hudson Yards are moving from Midtown with the remainder coming from Midtown South and Downtown. The Midtown Class vacancy rate increased to 11.7 percent from 11.4 percent in the second quarter as space was returned to the market. The rate has increased 11 of the last 12 months from 9.8 percent at this time last year. The overall vacancy rate increased to 10.5 percent from 10.3 percent in the second quarter, up more than a percentage point from 9.3 percent at this time last year. The Midtown Class average asking rent remained flat for the quarter, increasing just under one percent to $81.91 per square foot. Year over year, the Midtown Class average asking rent is up a modest 2.0 percent. Overall asking rents recorded similar growth for the quarter but experienced a more typical 3.9 percent year-over-year growth rate to $75.71 per square foot. Submarket boundaries map Key market indicators Q3 2016 Stock Overall net absorption 286,999,780 s.f. 921,155 s.f. Overall vacancy rate 10.5% verage asking rent Under construction Market outlook $75.71 p.s.f. 7,777,231 s.f. With the election fast approaching, political and economic uncertainty both nationally and internationally will weigh on the market into the first half of the fourth quarter. Leasing activity has been light year to date, but a rebound after the election could boost year-end numbers. Vacancy is expected to increase in the coming months as space is returned to the market. sking rents remain flat as landlords push concessions in an effort to maintain current rents. Some uncertainty surrounding proposed new office towers persists in the market despite strong activity at projects under construction in the Hudson Yards district.
JLL Office Outlook New York Q3 2016 11 Midtown verage rental rates (Class vs. Class B) Overall new deliveries / overall net absorption / overall vacancy rates $ p.s.f. $100 $90 $80 $70 $60 Class rental rate Class B rental rate s.f. in millions 8.0 4.0 New deliveries YTD Vacancy Class YTD Net absorption YTD Vacancy Class B YTD 16% 12% $50 $40 $30 $20 $10 $0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 0.0-4.0-8.0-12.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 8% 4% 0% Significant lease transactions Penguin Random House 1745 Broadway Milbank, Tweed, Hadley & McCloy 55 Hudson Yards Bloomberg LP 919 Third venue Dentons 1221 venue of the mericas WeWork 12 East 49th Street Class 603,605 s.f. Class 250,000 s.f. Class 204,442 s.f. Class 191,108 s.f. Class 159,306 s.f. Large availabilities 390 Madison venue Class 843,674 s.f. 4 Times Square Class 694,010 s.f. 1155 venue of the mericas Class 538,688 s.f. 75 Rockefeller Plaza Class 446,087 s.f. Recent sales transactions 10 Hudson Yards (44% interest) 1,809,073 s.f. 1095 venue of the mericas (49% interest) 1,036,534 s.f. Class $1,188 p.s.f. Class $2,270 p.s.f.
New York Midtown South JLL Office Outlook New York Q3 2016 12
JLL Office Outlook New York Q3 2016 13 New York Midtown South boundaries Chelsea South of 30th Street, west of Fifth venue, north of 14th Street and east of the Hudson River. Hudson Square South of 14th Street, west of venue of the mericas, north of Canal Street and east of the Hudson River. Gramercy Park South of 30th Street, west of the East River, north of 14th Street and east of Fifth venue. SoHo South of Houston Street, west of the East River, north of Canal Street, and east of venue of the mericas. Greenwich Village North of Houston Street, south of 14th Street, west of the East River and east of venue of the mericas.
JLL Office Outlook New York Q3 2016 14 Midtown South Quarter in review While market expectations have flattened in other parts of Manhattan, Midtown South continues to thrive as the hub for New York City s flourishing creative sector. The area, which for several years has been one of the tightest markets in the country, recently edged out Midtown as the nation s most expensive Class market. fter a quiet summer in terms of leasing volume, Midtown South recorded its lowest quarter of activity since the first quarter of 2009, likely the result of few new opportunities and an increase in asking rents. lthough the Plaza District in Midtown historically has captured the majority of the top rents in Manhattan, an increasing number of transactions with starting rents of $85 per square foot and greater have been moving west and south into Midtown South. n additional two leases were signed in excess of $100 per square foot this quarter. Winton Capital will be relocating from 375 Park venue into 34,944 square feet at 315 Park venue South and libaba committed to expanding onto an additional floor at 860 Washington Street, coming fresh off the heels of its original lease signing last quarter. Year to date, six high-end leases were signed in Midtown South, surpassing last year s total of four. In 2014, nine such transactions were signed. Midtown South remains one of the tightest markets in the country with a Class vacancy rate of 5.8 percent. However, small increases in vacancy were recorded in all submarkets over the quarter, with the overall vacancy rate increasing from 6.7 to 7.0 percent. In addition, several noteworthy sublease availabilities were added to the market this summer. lthough the current Midtown South sublease vacancy rate remains low at 1.7 percent, further rate increases will be closely monitored as an indication of potential weakness in the market as venture capital funding tightens. The sublease vacancy rate has increased six straight quarters since the beginning of last year, marking its highest availability since the third quarter of 2012. Midtown South Class rents have surpassed Midtown pricing as the average asking rent has surged 80 percent since 2009. Class rents increased $1.52 per square foot from last quarter to $83.19. Quarter over quarter, overall rents increased $1.55 per square foot to $71.98. The rise in asking rents is largely attributable to higher-priced space coming to market rather than existing spaces carrying a rent increase as the market shows signs of stabilizing at its peak. Submarket boundaries map Key market indicators Q3 2016 Stock 66,578,378 s.f. Overall net absorption -166,225 s.f. Overall vacancy rate 7.0% verage asking rent $71.98 p.s.f. Under construction 929,210 s.f. Market outlook Despite slower rental growth in the past 12 months, an imminent and major correction in Midtown South does not appear likely without a significant decline in the tech industry and a subsequent increase in sublease availability. With limited large blocks of space available and minimal lease roll expected in the upcoming years, major landlords are adding new developments to the Midtown South market. Several large blocks within new construction buildings are slated for delivery by the end of 2018, including 512 West 22nd Street, 61 Ninth venue and 412 West 15th Street; however, these buildings are small in size and priced at the top of the market. s vacancy is expected to remain tight and asking rents are at record highs, ongoing demand in the market will be tested when traditional tenants are forced to explore options elsewhere in Manhattan, Brooklyn and Long Island City.
JLL Office Outlook New York Q3 2016 15 Midtown South verage rental rates (Class vs. Class B) Overall new deliveries / overall net absorption / overall vacancy rates $ p.s.f. $90 $80 $70 $60 Class rental rate Class B rental rate s.f. in millions 1.0 0.5 0.0 New deliveries YTD Vacancy Class YTD Net absorption YTD Vacancy Class B YTD 12% 10% 8% $50 6% $40-0.5 4% $30-1.0 2% $20 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016-1.5 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 0% Significant lease transactions Winton Capital Management 315 Park venue South Lieff Cabraser Heimann & Bernstein 250 Hudson Street Silicon Valley Bank 387 Park venue South IMG Worldwide 304 Park venue South Class 34,844 s.f. Class 27,778 s.f. Class 19,269 s.f. Class 18,032 s.f. Large availabilities 315 Park venue South Class 153,450 s.f. 233 Spring Street Class 132,191 s.f. 360 Park venue South Class B 112,500 s.f. 261-271 Eleventh venue Class B 100,000 s.f. Recent sales transactions 11 Madison venue (40% interest) 2,285,846 s.f. 125 West 25th Street 138,000 s.f. Class $1,137 p.s.f. Class $1,087 p.s.f.
New York Downtown JLL Office Outlook New York Q3 2016 16
JLL Office Outlook New York Q3 2016 17 New York Downtown boundaries Tribeca/City Hall South of Canal Street, west of the East River and Pearl Street, north of nn Street and east of West Street. Financial District South of nn Street, west of Pearl Street, east of the Hudson River, south of lbany Street and east of Trinity Street. World Trade Center South of Vesey Street, but inclusive of 7 World Trade Center, west of Trinity Place, north of lbany Street and east of the Hudson River. Water Street Corridor South of the Brooklyn Bridge, west of the East River and east of Pearl Street.
JLL Office Outlook New York Q3 2016 18 Downtown Quarter in review In the Downtown Manhattan market, big-name commitments at the World Trade Center were the highlight of the third quarter. Zurich merican Insurance Co. signed perhaps the most notable lease of the quarter, taking 131,876 square feet at Silverstein Properties 4 World Trade Center. The insurance giant left its longtime space at 1 Liberty Plaza and shed roughly 30,000 square feet in favor of the newly constructed tower. Zurich was joined at 4 World Trade Center by Global tlantic Financial Group Ltd. and insurer Validus Holdings Ltd. The two firms also signed leases in the third quarter, for 44,711 square feet and 24,489 square feet, respectively. With all three firms relocating from existing Downtown buildings, the moves highlight a flight to quality among downtown FIRE sector tenants and bring occupancy at 4 World Trade Center up to roughly 78 percent. The average Class rental rate in the Downtown market declined slightly in the third quarter, from $63.25 per square foot to $62.78 per square foot. This 0.7 percent decline was due largely to the relatively strong leasing activity at the World Trade Center, which took pricier space off the market. Vacancy dropped 80 basis points quarter over quarter in the World Trade Center submarket, where average asking rents of $75.90 per square foot represent a 31 percent premium over the Downtown market as a whole. Overall asking rents across the Downtown market remained relatively unchanged at $58.04 per square foot, up slightly from $57.97 per square foot at the end of the second quarter. The market s overall vacancy rate of 10.7 percent represents a 50-basis-point decline over the quarter and an 80-basis-point-decline year over year. long with activity at the World Trade Center, a main contributor to this decline in vacancy was the 182,750-square-foot lease signed by the New York City Department of Finance at 375 Pearl Street in the Tribeca/City Hall submarket. In the largest new lease of the year for the Downtown market, the city agency signed on to occupy the entire 26th through 30th floors of the building once renovations are complete. Verizon s former data center is undergoing a large-scale upgrade that includes floor-to-ceiling windows on the upper floors of the building. 375 Pearl Street boasts proximity to City Hall and other government buildings, making it an ideal location for the city agency. Other leases signed in the quarter include Weill Cornell Medical College taking 55,000 square feet at 156 William Street, as well as John V. Lindsay Wildcat Charter School s lease for 23,050 square feet at 17 Battery Place South. The leases provide anecdotal evidence that the fast-growing education and healthcare sector, which traditionally had not been considered office-using, is having a positive effect on the Downtown office market. In fact, education and healthcare tenants accounted for more than 16 percent of third quarter office leasing activity in the Downtown market. Submarket boundaries map Key market indicators Q3 2016 Stock Overall net absorption 96,294,748 s.f. 414,254 s.f. Overall vacancy rate 10.7% verage asking rent Under construction $58.04 p.s.f. 2,861,402 s.f. Market outlook With a healthy pipeline of transactions expected to close in the coming months, strong fourth quarter leasing activity is anticipated in the Downtown market. Vacancy, however, could trend upwards in the coming quarters as blocks from recently signed Downtown relocations hit the market as negative absorption. Looking forward, the pace at which these blocks are re-absorbed will be a good indicator of the strength of the Downtown market.
JLL Office Outlook New York Q3 2016 19 Downtown verage rental rates (Class vs. Class B) Overall new deliveries / overall net absorption / overall vacancy rates $ p.s.f. $65 $60 $55 $50 $45 $40 $35 $30 $25 Class rental rate Class B rental rate 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 s.f. in millions 4.5 3.0 1.5 0.0-1.5-3.0-4.5 New deliveries YTD Vacancy Class YTD Net absorption YTD Vacancy Class B YTD 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 18% 16% 14% 12% 10% 8% 6% 4% Significant lease transactions New York City Department of Finance 375 Pearl Street Zurich merican Insurance Company 4 World Trade Center Guggenheim Museum One Liberty Plaza Global tlantic Financial Group 4 World Trade Center Class B 182,750 s.f. Class 131,876 s.f. Class 45,558 s.f. Class 44,711 s.f. Large availabilities 180 Maiden Lane Class 621,771 s.f. 1 World Trade Center Class 602,144 s.f. 375 Pearl Street Class B 543,312 s.f. 4 World Trade Center Class 481,263 s.f. Recent sales transactions N/
JLL Office Outlook New York Q3 2016 ppendix New York appendix Statistics Contiguous space New construction Select sales Glossary
JLL New York Office Outlook Q3 2016 ppendix Class Inventory (s.f.) Total net absorption (s.f.) YTD total net absorption (s.f.) YTD total net Direct vacancy absorption (% (%) of stock) verage direct Total vacancy asking rent ($ (%) p.s.f.) verage overall asking rent ($ p.s.f.) YTD completions (s.f.) Under construction (s.f.) Financial District Totals 37,695,289-60,285-107,254-0.3% 10.3% 11.4% $54.03 $53.40 0 0 Tribeca/City Hall Totals 17,721,155 207,835 164,853 0.9% 6.7% 6.9% $49.53 $49.72 0 0 Water Street Corridor Totals 22,475,340 111,241 83,627 0.4% 7.8% 10.9% $56.91 $52.73 0 0 World Trade Center Totals 18,402,964 155,463 394,463 2.1% 11.7% 12.9% $77.48 $75.90 0 2,861,402 Downtown Totals 96,294,748 414,254 535,689 0.6% 9.3% 10.7% $59.63 $58.04 0 2,861,402 Columbus Circle Totals 25,296,466-23,425-65,065-0.3% 5.4% 6.7% $79.09 $74.38 0 0 Grand Central Totals 72,205,869 187,922-685,079-0.9% 9.7% 11.4% $72.24 $69.61 0 862,154 Penn Plaza/Garment Totals 46,189,228 1,544,869 1,278,121 2.8% 8.5% 10.3% $68.24 $65.24 1,946,970 6,245,077 Plaza District Totals 103,086,508-346,927-623,238-0.6% 8.7% 10.7% $89.25 $85.55 0 670,000 Times Square Totals 40,221,709-441,284-165,912-0.4% 9.7% 11.2% $76.80 $75.26 0 0 Midtown Totals 286,999,780 921,155-261,173-0.1% 8.8% 10.5% $78.57 $75.71 1,946,970 7,777,231 Chelsea Totals 23,417,520-17,032-164,982-0.7% 4.4% 6.2% $60.92 $62.54 237,558 727,807 Gramercy Park Totals 21,982,308-13,564 91,890 0.4% 5.5% 6.9% $76.39 $74.12 0 0 Greenwich Village Totals 5,801,496 3,806-22,348-0.4% 1.2% 2.8% $80.79 $82.21 0 0 Hudson Square Totals 10,646,931-36,237-112,542-1.1% 7.9% 10.1% $82.03 $78.88 700,000 120,413 SoHo Totals 4,730,123-103,198-189,602-4.0% 7.1% 8.8% $76.40 $75.35 0 81,000 Midtown South Totals 66,578,378-166,225-397,584-0.6% 5.2% 7.0% $73.20 $71.98 937,558 929,220 New York City Totals 449,872,906 1,169,184-123,068 0.0% 8.4% 10.0% $73.51 $71.25 2,884,528 11,567,853 Financial District 14,246,623-97,710 6,079 0.0% 11.1% 11.8% $59.25 $58.73 0 0 Tribeca/City Hall 4,372,411 0 10,547 0.2% 0.2% 0.2% $60.00 $60.00 0 0 Water Street Corridor 20,941,226 108,614 31,077 0.1% 8.3% 11.6% $56.96 $52.80 0 0 World Trade Center 18,402,964 155,463 394,463 2.1% 11.7% 12.9% $77.48 $75.90 0 2,861,402 Downtown 57,963,224 166,367 442,166 0.8% 9.4% 11.2% $65.62 $62.78 0 2,861,402 Columbus Circle 17,370,464 14,219-119,644-0.7% 6.6% 7.8% $83.87 $80.05 0 0 Grand Central 39,504,012 208,343-610,750-1.5% 12.6% 14.4% $78.09 $75.55 0 862,154 Penn Plaza/Garment 18,095,692 1,510,087 1,345,751 7.4% 10.4% 12.1% $76.91 $73.94 1,946,970 6,245,077 Plaza District 85,911,374-338,377-703,231-0.8% 9.4% 11.6% $91.97 $88.23 0 670,000 Times Square 31,959,230-390,756-159,794-0.5% 9.4% 10.4% $80.89 $80.59 0 0 Midtown 192,840,772 1,003,516-247,668-0.1% 9.9% 11.7% $84.53 $81.91 1,946,970 7,777,231 Chelsea 10,592,111-12,545 11,283 0.1% 1.1% 2.5% $74.81 $72.19 237,558 727,807 Gramercy Park 10,721,487-79,178 63,320 0.6% 6.1% 7.4% $80.60 $80.09 0 0 Greenwich Village 1,915,423-26,596-46,397-2.4% 2.0% 3.3% $94.17 $104.60 0 0 Hudson Square 4,589,421-31,725-9,268-0.2% 8.4% 10.8% $96.02 $91.89 700,000 120,413 SoHo 964,765-4,560 14,841 1.5% 5.5% 5.8% $74.71 $74.91 0 81,000 Midtown South 28,783,207-154,604 33,779 0.1% 4.3% 5.8% $84.89 $83.19 937,558 929,220 New York City 279,587,203 1,015,279 228,277 0.1% 9.2% 11.0% $80.48 $77.88 2,884,528 11,567,853 Financial District B 23,448,666 37,425-113,333-0.5% 9.8% 11.2% $50.45 $49.90 0 0 Tribeca/City Hall B 13,348,744 207,835 154,306 1.2% 8.8% 9.1% $49.44 $49.63 0 0 Water Street Corridor B 1,534,114 2,627 52,550 3.4% 0.5% 1.4% $43.30 $44.41 0 0 World Trade Center B 0 0 0 0.0% 0.0% 0.0% $0.00 $0.00 0 0 Downtown B 38,331,524 247,887 93,523 0.2% 9.1% 10.1% $50.10 $49.78 0 0 Columbus Circle B 7,926,002-37,644 54,579 0.7% 2.8% 4.4% $54.53 $52.54 0 0 Grand Central B 32,701,857-20,421-74,329-0.2% 6.3% 7.8% $57.94 $55.58 0 0 Penn Plaza/Garment B 28,093,536 34,782-67,630-0.2% 7.3% 9.1% $60.27 $57.74 0 0 Plaza District B 17,175,134-8,550 79,993 0.5% 4.8% 6.0% $61.15 $58.29 0 0 Times Square B 8,262,479-50,528-6,118-0.1% 11.1% 14.0% $63.36 $59.91 0 0 Midtown B 94,159,008-82,361-13,505 0.0% 6.4% 8.1% $59.85 $57.21 0 0 Chelsea B 12,825,409-4,487-176,265-1.4% 7.1% 9.2% $58.99 $60.50 0 0 Gramercy Park B 11,260,821 65,614 28,570 0.3% 4.9% 6.5% $71.15 $67.43 0 0 Greenwich Village B 3,886,073 30,402 24,049 0.6% 0.8% 2.5% $64.77 $67.41 0 0 Hudson Square B 6,057,510-4,512-103,274-1.7% 7.6% 9.7% $70.29 $67.66 0 0 SoHo B 3,765,358-98,638-204,443-5.4% 7.5% 9.6% $76.77 $75.42 0 0 Midtown South B 37,795,171-11,621-431,363-1.1% 5.9% 7.8% $66.40 $65.52 0 0 New York City B 170,285,703 153,905-351,345-0.2% 6.9% 8.5% $58.18 $56.95 0 0
JLL Office Outlook New York Q3 2016 ppendix Midtown buildings with large contiguous blocks of space B B B B B B B 37 Blocks 8,368,834 s.f. 390 Madison venue 843,674 s.f. 4 Times Square 694,010 s.f. 1155 venue of the mericas 538,688 s.f. 75 Rockefeller Plaza 446,087 s.f. 575 Fifth venue 352,913 s.f. 5 Manhattan West 306,004 s.f. 9 West 57th Street 278,200 s.f. 5 Manhattan West 265,338 s.f. Tower 46 (55 West 46th Street) 256,423 s.f. 777 Third venue 221,850 s.f. 1633 Broadway 212,122 s.f. 485 Lexington venue 210,373 s.f. 65 East 55th Street 208,049 s.f. 285 Madison venue 203,648 s.f. 605 Third venue 194,763 s.f. 135 West 50th Street 183,948 s.f. One Park venue 177,267 s.f. 335 Madison venue 172,602 s.f. 1345 venue of the mericas 169,226 s.f. 1271 venue of the mericas 158,856 s.f. 11 Times Square 157,807 s.f. 110 East 60th Street 156,917 s.f. 787 Eleventh venue 155,951 s.f. 220 East 42nd Street 152,125 s.f. 1501 Broadway 147,108 s.f. 622 Third venue 146,395 s.f. 405 Lexington venue 145,813 s.f. 1325 venue of the mericas 139,992 s.f. 1675 Broadway 132,724 s.f. 1301 venue of the mericas 128,708 s.f. 1211 venue of the mericas 127,672 s.f. 1 Penn Plaza 122,686 s.f. 2 Herald Square 122,057 s.f. 31 West 52nd Street 115,230 s.f. 1440 Broadway 112,541 s.f. 605 Third venue 107,724 s.f. 424-438 West 33rd Street 103,343 s.f. Contiguous blocks greater than 100,000 square feet
JLL Office Outlook New York Q3 2016 ppendix Midtown South buildings with large contiguous blocks of space B B 4 Blocks: 498,141 s.f. 315 Park venue South 153,450 s.f. 233 Spring Street 132,191 s.f. 360 Park venue South 112,500 s.f. 261-271 Eleventh venue 100,000 s.f. Contiguous blocks greater than 100,000 square feet
JLL Office Outlook New York Q3 2016 ppendix Downtown buildings with large contiguous blocks of space B B B B 21 Blocks: 5,072,003 s.f. 180 Maiden Lane 542,526 s.f. 1 World Trade Center 602,144 s.f. 375 Pearl Street 543,312 s.f. 4 World Trade Center 481,263 s.f. 28 Liberty Street 477,922 s.f. 195 Broadway 247,199 s.f. 1 Liberty Plaza 219,484 s.f. 32 Old Slip 193,118 s.f. 1 State Street 188,213 s.f. 55 Water Street 177,456 s.f. 32 Old Slip 153,500 s.f. 300 Vesey Street 150,580 s.f. 1 Liberty Plaza 147,554 s.f. 28 Liberty Street 136,460 s.f. 200 Vesey Street 128,975 s.f. 17 Battery Place North 121,189 s.f. 60 Hudson Street 120,000 s.f. 1 World Trade Center 119,184 s.f. 1 New York Plaza 112,677 s.f. 28 Liberty Street 104,827 s.f. 1 World Trade Center 104,420 s.f. Contiguous blocks greater than 100,000 square feet
JLL Office Outlook New York Q3 2016 ppendix Market CBD under construction Market/building Class Developer/owner RB Pre-leased Major tenants signed Delivery date CBD Midtown 30 Hudson Yards Trophy Related Companies 2,600,000 s.f. 100.0% Time Warner; KKR; Wells Fargo; Related 2019 1 Manhattan West Trophy Brookfield Properties 2,088,941 s.f. 28.8% Skadden 2019 55 Hudson Yards Trophy Related Companies / Mitsui Fudosan 1,556,136 s.f. 26.8% Boies, Schiller & Flexner; Marketxess; Milbank 2018 390 Madison venue Trophy L&L Holding Company 862,154 s.f. 0.0% N/ 2017 425 Park venue Trophy L&L Holding Company 670,000 s.f. 29.9% Citadel 2018 Midtown South 512 West 22nd Street Vornado Realty Trust/lbanese Organization 174,222 s.f. 0.0% 2018 61 Ninth venue Vornado Realty Trust/urora Capital ssociates 153,754 s.f. 0.0% 2018 540 West 26th Street Savanna 142,554 s.f. 59.9% venues: The World School 2017 860 Washington Street Romanoff Equities 120,413 s.f. 45.1% Delos; libaba 2016 413 West 14th Street Rockpoint Group/Highgate Holdings/Meilman 113,004 s.f. 0.0% 2016 412 West 15th Street Rockpoint Group/Highgate Holdings/Meilman 144,273 s.f. 0.0% 2017 300 Lafayette Street LargaVista/Related Companies 81,000 s.f. 0.0% 2018 Downtown 3 World Trade Center Trophy Silverstein Properties 2,861,402 s.f. 37.0% GroupM 2018 CBD totals 11,567,853 s.f. 41.2%
JLL Office Outlook New York Q3 2016 ppendix Manhattan CBD select sales Midtown South 11 Madison venue (40% interest) Midtown 10 Hudson Yards (44% interest) Class Class RB 2,285,846 s.f. RB 1,809,073 s.f. Buyer PGIM Real Estate Buyer llianz Seller SL Green Realty Seller Coach/Kuwait Investment uthority Price per s.f. $1,137 Date sold ugust 2016 Price per s.f. $1,188 Date sold July 2016 Midtown 1095 venue of the mericas (49% interest) Midtown 275 Madison venue Class Class RB 1,036,534 s.f. RB 336,077 s.f. Buyer HKM Buyer RPW Group Seller Ivanhoe Cambridge/Callahan Capital Partners Seller RFR Realty Price per s.f. $2,270 Date sold July 2016 Price per s.f. $812 Date sold ugust 2016
Glossary JLL Office Outlook New York Q3 2016 ppendix
JLL Office Outlook New York Q3 2016 ppendix Common real estate terms ctive requirements: Tenants actively seeking space in the market verage asking rent: Quoted at a gross price exclusive of tenant electricity based on a weighted average of available space vailable space: Existing space that is being actively marketed for immediate or future occupancy, including both direct and sublease space Build-out: The cost of configuring and finishing new space in accordance with a tenant s specifications Build to suit: method of leasing property whereby the landlord builds a new building in accordance with a tenant s specifications Capital improvement: ny major physical development or redevelopment to a property that extends the life of the property. Examples include upgrading the elevators, replacement of the roof and renovations of the lobby Class: Building classification system broken down by Trophy, Class, B and C buildings. Location, building amenities, mechanical/hvc systems, age of building and tenant roster are some of the components that determine an office building's class Concessions: Cash expended by the landlord in the form of rent abatement, build-out allowance or other payments to induce the tenant to sign a lease. The level of concessions fluctuates with supply and demand conditions in the market and is up for negotiation in a similar fashion to rental rates Contiguous space: djoining office space Delivered buildings: Buildings that have completed construction and are ready for tenant build-out. May or may not yet have a Certificate of Occupancy Direct rent: Rents quoted directly from the landlord on vacant space Effective rent: The rental rate actually achieved by the landlord or tenant after deducting the value of concessions from the base rental rate paid; usually expressed as an average rate over the term of the lease Face rental rate: The asking or nominal rental rate published by the landlord Gross leases: The quoted rents include tax and operating costs (property taxes, insurance and maintenance expenses) Hard cost: The cost of actually constructing property improvements Indirect (soft) costs: Development costs other than material and labor costs, which are directly related to the construction of improvements, including administrative and office expenses, commissions, architectural, engineering and financing costs Lease: legally binding agreement whereby the owner of real property (i.e., landlord) gives the right of possession to another (i.e., tenant) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent) Leased space: Existing space under contract, regardless of if it is occupied; also includes subleased space NNN leases: The quoted rents do not include tax and operating costs (property taxes, insurance and maintenance expenses) Net absorption: Net change in occupied space between two dates measured as square footage. (i.e. a measure of the total square feet leased over a period of time taking into consideration office space vacated in the same area during the same period) Occupied space: Total supply minus available space Operating expense: The actual costs associated with operating a property, including maintenance, repairs, management, utilities, taxes and insurance Preleased space: Space that has been leased prior to construction completion date or Certificate of Occupancy date
JLL Office Outlook New York Q3 2016 ppendix Proposed construction: Buildings are proposed when permits are in place, site is being actively marketed but significant base building has not yet commenced. Proposed asking rents are not included in market calculations Shell space: The interior condition of the tenant's usable square footage when it is without improvements or finishes. Shell construction typically denotes the floor, windows, walls and roof of an enclosed premises and may include some HVC, electrical or plumbing improvements but not demising walls or interior space partitioning Sublease space: Leased space that is being actively marketed by the tenant under contract to another party Tenant at will: One who holds possession of premises by permission of the owner or landlord, but without agreement for a fixed term Tenant improvement allowance (TI): Improvements to land or buildings to meet the needs of tenants. May be new improvements or remodeling, and may be paid for by the landlord, the tenant, or shared Total supply: The entire area of an office building comprised of both usable space and an allocated portion of the common area Turn key project: project in which the developer is responsible for the total completion of a building (including interior design and construction) or demised premises to the customized requirements of a future owner or tenant Under construction: Buildings are under construction when significant work is underway from ground up development (i.e. steel is going up) Under renovation / rehab: Buildings are under renovation / rehab when significant base building renovation is underway Vacant space: Direct existing space being actively marketed for immediate occupancy as of the survey date, not including sublease space
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